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Sell-side systems in need of upgrade for new risk reality, says new Acuity study

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Sell-side risk management is in need of an overhaul that consolidates systems and incorporates the increased importance of margin into risk calculations. That’s the central finding from a recent Acuity study, conducted in partnership with Sterling Trading Tech.

The survey of 55 banks and broker-dealers across the world, shows that fragmented legacy risk systems are hampering firms’ ability to respond to increased volatility across global markets.

The uncertainty of market movements this year, as well as the fallout from the Archegos blow-up, has thrown the issue of counterparty risk and monitoring margin into sharp relief.

The findings show that not only are volatile conditions forcing market makers to be more vigilant about collecting margin calls, but also that upgrades to existing infrastructure are needed across much of the industry.

Survey data shows that 86% of respondents use more than one system to manage risk across their derivatives business.

The survey found that regulatory and market pressure is growing to monitor risk and margin on a real time basis. Some 73% of respondents use between two and five risk systems, showing the burden and complexity of legacy infrastructure that firms have built up over the years.

A total of 64% of respondents, meanwhile, take more than a week to implement risk and margin policy changes in their systems, timescales that are increasingly out of sync with fast changing market dynamics, while risk committee changes to parameters lag the real time demands of current day markets 78% or respondents believe that a more dynamic risk and margin policy would provide a competitive edge.

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